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Document Type

Case Study

Case Series

Broad-Based Asset Management Programs

JEL Codes

G01, G28

Abstract

After the devaluation of the Thai baht in 1997, the Malaysian economy experienced turmoil and a financial crisis. As part of the government’s response to the financial crisis, it established Danaharta, a national asset management company, alongside a recapitalization agency, Danamodal, and a debt restructuring body, the CDRC, to address instability in the financial system. The government established Danaharta with the purpose of removing nonperforming loans from the financial system and maximizing their recovery. The Danaharta Act granted the agency special legal authority to more efficiently resolve NPLs. Danaharta received funding from the government and issued zero-coupon, government guaranteed bonds in exchange for assets, which it purchased at market value. To incentivize financial institutions to sell NPLs, Danaharta implemented an incentive and penalty structure, including a profit-sharing arrangement. Danaharta also managed RM27.97 billion ($7.4 billion) in NPLs previously acquired by the government and central bank. Danaharta used a variety of methods to deal with acquired assets depending on whether the borrowers were viable or non-viable. Over its lifetime, Danaharta’s portfolio totaled RM52.42 billion in face value of NPLs, and it recovered RM30.35 billion (58 percent), and recognized a net loss of RM1.14 billion on RM8.94 billion total invested. When Danaharta ceased operations in December 2005, the remaining residual assets were transferred to a subsidiary of the Ministry of Finance, Prokhas, for collection.

Date Revised

2021-06-30

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